Tuesday, January 03, 2012

Idaho Potato Growers Could Have Conspired Through Co-op Supply Program

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

Idaho potato growers who allegedly founded statewide and national cooperatives that implemented a scheme to increase the price of potatoes through a supply management program could have engaged in an unlawful price fixing conspiracy, the federal district court in Boise has ruled.

A complaining putative class of direct and indirect purchasers failed, however, to sufficiently allege that licensors, marketers, and dehydrators associated with the growers illegally participated in the conspiracy.

Motions by numerous defendants to dismiss the claims against them for failure to state a claim were, therefore, either granted in their entirety or in part. Additionally, the indirect purchasers’ claims were dismissed without prejudice for lack of standing.

Capper-Volstead Immunity

The claims against the potato growers could not be dismissed on the basis that the defendants were exempt from antitrust attack under the Capper-Volstead Act, which provides agricultural cooperatives a limited exemption from antitrust laws.

Questions of fact remained about whether the Capper-Volstead Act applied. Allegations that the defendants entered into agreements with unprotected entities—including non-protected potato groups, non-producer partners, and a dehydration joint venture—could, if proved, preclude application of the exemption. Moreover, acreage reductions, production restrictions, and collusive crop planning were not activities protected by the Capper-Volstead Act, the court explained.

Sufficiency of Allegations

The complaint answered “the basic who-what-where-when Question” with sufficient factual detail to survive outright dismissal, the court decided. It detailed various acts undertaken by the most of the grower defendants in furtherance of the conspiracy, including yearly acreage reduction rules, a bid buy-down program, shipping holidays, flow control activities, and offloading of surplus potatoes to dehydration plants.

These defending growers’ alleged involvement in the scheme surpassed mere participation in a trade association and was sufficiently detailed to form the basis of a federal antitrust claim, the court found. They were alleged to have been directly involved in the meetings and agreements leading to the formation of the cooperatives, which were specifically aimed at stabilizing potato prices and supplies.

As such, the defendants did not merely join an extant trade association and then choose whether or not to follow guidelines, but actually agreed to the conspiracy outlined in the complaint, and then created the trade associations to formalize and implement that agreement, the court said.

Two of the potato growers, however, were not sufficiently alleged to have participated in the conspiracy, the court added. While the complaint asserted that these two growers were founding members of the cooperatives, that claim rested on an unsupported allegation that certain individuals connected with the growers’ organizations attended a meeting and signed on to the purported conspiracy.

Nothing in the pleadings indicated the individuals’ relationship to the defending entities or their ability to act—or even attend the meetings at issue—on behalf of the entities, the court observed.

Companies that licensed the right to place their branded label on certain growers’ potatoes, the marketing agent for several of the growers, and dehydrators that participated in a joint venture further down the supply chain could not be found liable under the Sherman Act for the alleged conspiracy among the growers, in the court’s view. The plaintiffs failed to sufficiently link them to the conspiracy either by direct participation or an agency relationship, the court held.

While the complaint plausibly alleged that the Idaho cooperative viewed the dehydration venture as a key part of its supply-management efforts, the plaintiffs had failed to alleged that the individual dehydrators joined the underlying conspiracy.

Claims Against Canadian Cooperative

Claims against a Canadian potato farmers’ cooperative were barred as well, the court held. The Canadian defendant was not immunized by either the Foreign Sovereign Immunities Act or the Cooperative Marketing Act. The defendant was protected from suit by the act of state doctrine because Canada had effectively granted the cooperative authority, as a member agency, to engage in the acts deemed unlawful by the purchasers.